Question

Assume a 10.5% discount rate (R).
Calculate an estimated value of a share of the stock using the Constant Growth Model

what information do you need

Answer 1

To calculate the estimated value of a share of stock using the Constant Growth Model (also known as the Gordon Growth Model), you need the following pieces of information:

1. **Dividend Per Share (D0)**: The most recent dividend paid per share.

2. **Growth Rate (g)**: The expected constant growth rate of the dividends (this is often expressed as a percentage).

3. **Discount Rate (R)**: The required rate of return, which you've provided as 10.5% (0.105).

Once you have this information, you can use the formula for the Constant Growth Model:

\[
P_0 = \frac{D_1}{R - g}
\]

Where:
- \( P_0 \) = price of the stock today
- \( D_1 \) = expected dividend next year (which can be calculated as \( D_0 \times (1 + g) \))
- \( R \) = discount rate
- \( g \) = growth rate of the dividend

Please provide the recent dividend (D0) and the expected growth rate (g) for the calculation.